U.K. Policymakers Split On QE For Second Time

3/21/2012 7:25 AM ET

Bank of England's Monetary Policy Committee split on quantitative easing for the second time as David Miles and Adam Posen sought an increase in monetary stimulus.

Seven members including Governor Mervyn King voted to retain the size of the quantitative easing unchanged at GBP 325 billion, while two members preferred a GBP 25 billion increase, the minutes of the meeting showed Wednesday. In February, Miles and Posen demanded a GBP 75 billion increase.

"The Committee judged that the recent data had evolved in line with its expectations and that there had been little change to the balance of risks to U.K. activity and inflation," the minutes revealed. However, members expressed concern over rising oil prices.

Miles and Posen continued to feel that a larger monetary stimulus was warranted to reduce the risk that persistently weak growth would damage the future supply capacity of the economy. Policy should be loosened further to stimulate demand quickly.

All members voted to retain a record low 0.50 percent interest rate. The meeting was held on March 7 and 8.

Policymakers also pointed out the risk that inflation might fail to fall back as expected. A clear risk surrounded the outlook for crude oil prices, they said.

At the same time, there were significant downside risks to economic activity that might result in inflation falling materially below the target in the medium term, members said.

"While it appeared more certain that underlying growth was likely to pick up in the United Kingdom in the near term, many of the risks to the outlook were still present," the minutes showed.

The expected fall in inflation levels may not be as fast as projected in the latest inflation report, BoE Chief Economist Spencer Dale said in a speech in Wales on Tuesday. In February, inflation eased to 3.4 percent, the lowest rate since November 2010, from 3.6 percent in January.

There are increasing divergences of opinion within the MPC over the outlook for consumer price inflation and the balance of risks, IHS Global Insight Chief U.K. Economist Howard Archer said. The economist currently believes that limited additional QE is more likely than not.

Elsewhere, BoE's regional agents report released today showed that credit conditions tightened in the U.K., although for many firms the demand for loans remained fairly weak.

Employment in the private sector is likely to be broadly stable over the coming six months, the report said. At the same time, the increase in labor cost had been fairly modest.

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